Monday, July 30, 2012

Omni-Channel Omni-Complex

According to the U.S. Commerce Department, retail e-commerce sales accounted for 4.9% of all retail sales in the second quarter of 2012, up from 4.6% at this time last year. In fact, e-commerce has consistently grown from less than a percent to almost 5% of the total retail sales during the last two decades, often growing two to three times the rate of growth for conventional retail. Omni-channel retailing is here to stay. That part is concluded! Therefore, if you are a retailer and wish to stay around longer, welcome to the new world of omni-channel retailing. Hopefully, you have been working on building your omni-channel capabilities for some time, because it ain’t going to be easy or quick for that matter! 
In 2009, I had presented a process-focused view of the omni-channel capabilities that a company must build in order to be successful in the bold new world of retaining. The focus at the time was on integrated processes across the conventional enterprise silos: Integrated Assortment Planning, Integrated Supply Chain Planning and Execution, and Integrated Store Operations. The premise in that article was that process-based integration will lead to efficiencies across the board bringing cost and customer-experience benefits. Since then, several studies have shown an increased understanding of such an integration across the enterprise. However, actual adoption has been low. Why?
Obviously, there are synergies that can be leveraged across these processes and physical assets. Ideally, the supply chain assets (think the warehouse building, MHE, people, inventory etc.) should be common no matter what channels do you operate. Same holds true for consolidating the sourcing spend, technology overheads, and shipping costs across these channels. Simple logic dictates that if you can consolidate these assets and use them as shared assets across all channels, you will be enhancing your ROA!
Conceptually, the companies get it. I believe that the reason for low adoption are generally more practical. I would put them into the following four categories:
  1. Operational: Consider a distribution facility that is just not designed for picking eaches to fulfill consumer orders. It may be the existing shelving, MHE, order fulfillment system, or the packing area that might constrain the direct-to-consumer fulfillment, but unless redesigned, such a challenge will likely constrain the options a retailer may have in consolidating the warehousing assets across their store and e-commerce channels. Improving a facility’s infrastructure and systems to support mixed order fulfillment to replenish stores, supply wholesale customers, as well as fulfill individual consumer orders can be expensive and time-consuming.
  2. Processes: Lack of integrated processes constrains a retailer’s ability to respond quickly to changes demand, supply, and flows across their supply chains. Achieving a working relationship among the different organizational units responsible for merchandising, supply chain, and store operations may be hard. Quite often, these organizations don’t share identical goals, focusing instead on specific departmental objectives at the cost of collective failure. Purchasing and inventory planners, for example, are at logger-heads and so may be the merchandising and sourcing!
  3. Current Org structures: Independent organizations responsible for managing different channels are quite the norm until now. For example, it is still not rare for the big retailers to bring in a chief honcho for their online channels. This creates inconsistent customer experience and set of objectives that these organizations try to achieve. The conventional channels are entrenched (and larger in size) for the time being, and therefore may not be quite amenable to the requirements of the new channels. This might be the biggest challenge for the retail executives to solve, though this is also a challenge that lies squarely in their own area of influence!
  4. Systems: Finally, as most of the enterprise processes are enabled through technology, achieving a working integration among the systems enabling these business processes is another challenge. These systems span across merchandising, inventory planning, demand and supply management, procurement, distribution and logistics.  Since these systems come from different solution providers and frequently hosted on different technology stacks, they are not designed to easily integrate. Lack of industry standards is also an issue creating challenges that may be hard to implement, if not quite impossible. Broken integration among the planning and execution systems is another challenge that retailers have struggled with over the years without a viable solution in sight forcing them to spend their energies in areas where they would rather not.
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Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon.

© Vivek Sehgal, 2012, All Rights Reserved.

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